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Pfizer Inc. (PFE - Analyst Report) posted fourth quarter earnings of 47 cents per share, 3 cents above the Zacks Consensus Estimate but 4% below the year-ago earnings. Results were hit by the loss of exclusivity of certain products and the unfavorable impact of currency fluctuation. Revenues, which fell 7% to $15.1 billion, were above the Zacks Consensus Estimate of $14.3 billion.

Including one-time items, fourth quarter earnings from continuing operations were 85 cents compared to the year-ago earnings of 11 cents.

Full year 2012 earnings declined 4% to $2.19 per share. Revenues fell 10% to $58.9 billion. Both earnings and revenues exceeded the Zacks Consensus Estimate of $2.16 per share and $58.4 billion, respectively.

The Quarter in Detail

While foreign exchange cut fourth quarter revenues by $271 million or 2%, operational factors impacted revenues negatively by $802 million or 5%.

International revenues declined 5% to $9.3 billion, mainly due to the unfavorable foreign exchange impact and the loss of Lipitor exclusivity. Meanwhile, US revenues declined 9% to $5.8 billion. US revenues were hit by the loss of exclusivity of Lipitor in Nov 2011 and Geodon in Mar 2012.

Biopharmaceutical products delivered fourth quarter revenues of $12.9 billion, down 9%. While the Primary Care and Specialty Care units in the Biopharmaceutical segment recorded a decline in revenues, Emerging Markets, Oncology and Established Products posted an increase in revenues.

The Primary Care unit recorded a 29% decline in revenues, which came in at $3.8 billion. A change in reporting for Lipitor and other genericized products affected Primary Care revenues by about $1.8 billion or 33% year-over-year. Lyrica continued to perform well with sales coming in at $1,132 million, up 13%.

Specialty Care segment sales declined 4% to $3.7 billion. The segment was impacted by about $360 million or 9% due to the genericization of certain products.

Meanwhile, the inclusion of Lipitor revenues contributed to the 3% increase in Established Products revenues, which came in at $2.4 billion.

Lipitor was hit hard by the loss of exclusivity in the US. Despite making significant efforts to reduce the impact of generic competition, Pfizer saw Lipitor revenues fall 93% to $61 million in the US. Generic competition increased with the entry of additional players like Mylan (MYL - Analyst Report) in the market.

The fourth quarter saw revenues from Emerging Markets grow 17% to $2.7 billion. The Animal Health segment also recorded a 6% increase in revenues which came in at $1.2 billion.

Consumer Healthcare revenues increased 16% to $936 million benefiting from the Ferrosan Consumer Health and Alacer Corp. acquisitions.

Selling, informational and administrative (SI&A) expenses fell 10% to $4.7 billion during the quarter. R&D expenses fell 13.7% to $2.0 billion. Pfizer remains committed to its cost-containment efforts and should realize cost savings due to workforce reductions, actions taken with the R&D portfolio, as well as savings from a smaller physical footprint.

In-Line Guidance

Pfizer provided its outlook for 2013. The company expects earnings of $2.20 - $2.30 per share on total revenues of $56.2 - $58.2 billion. Revenues will be hit by about $4 billion due to genericization and the expiration of a few co-promotion agreements.

Pfizer expects SI&A spend of $15.6 to $16.6 billion and R&D spend of $6.5 to $7.0 billion. Earnings and revenue guidance was in-line with expectations given the current Zacks Consensus Estimate of $2.29 per share and $57.6 billion, respectively.

Our Take

Pfizer’s fourth quarter results were well above expectations. Meanwhile, share buybacks, cost control and contribution from new products like Xeljanz and Eliquis should help the company achieve its 2013 guidance.

Pfizer currently carries a Zacks Rank #3 (Hold). Large-cap pharma stocks that currently look more attractive include Eli Lilly (LLY - Analyst Report) and Sanofi (SNY - Analyst Report). Both are Zacks Rank #2 (Buy) stocks.

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